Saturday, 20 April 2013

AgustaWestland initiates “dispute resolution” with MoD

"AgustaWestland will invoke arbitration if the MoD unilaterally cancels the AW-101 contract"

By
Ajai Shukla

Business Standard, 20th Apr 13

Business
Standard has learned that helicopter manufacturer AgustaWestland has written to
the Indian Ministry of Defence (MoD), formally initiating a process of “dispute
resolution” over allegations of bribery. This letter was sent on Apr 17, two
months after the MoD slapped AgustaWestland with a show-cause notice on Feb 15,
asking why a contract for twelve helicopters should
not be cancelled as the Anglo-Italian company had allegedly bribed Indian officials.

The Rs 4,000 crore contract was for twelve AgustaWestland
AW-101 helicopters, kitted out with plush cabins and high-tech security systems.
These were for the Indian Air Force (IAF) to transport VVIPs (Very Very
Important People, especially the president, top ministers and state guests)
around the subcontinent in suitable style.

But controversy erupted on Feb 12, when Italian prosecutors
in Milan arrested Giuseppe Orsi, the chief of Finmeccanica, the Italian defence
conglomerate that owns AgustaWestland. Italian investigators also raided the
offices of AgustaWestland, which Orsi headed in 2010 when the contract with
India was finalized. Orsi was picked up for allegedly bribing Indian officials,
including former IAF boss Air Chief Marshal Shashindra Pal Tyagi, in order to
win the contract.

Three days later, following a media outcry in India and
Italy, the MoD suspended payments to AgustaWestland and issued the show-cause
notice. AgustaWestland responded to the show-cause notice, denying any
wrongdoing. Parent company, Finmeccanica, has also protested its innocence.

Since then, MoD sources say that AgustaWestland has written
several times to the MoD, offering to discuss the issue and respond to the
allegations. Faced with silence from the MoD, the official letter on Wednesday represents
the initiation of a more formal and legalistic process, which the contract
provides for in the event of a dispute.

Sources who have seen the letter recount a paragraph: “AgustaWestland’s
helicopters have served the Government of India for more than 40 years. We
can state unequivocally that we have never knowingly breached any procurement
rules and have adhered to the requirements of the DPP [Defence Procurement
Procedure] without deviation. We want our relationship with India to continue
and we are deeply concerned at the current situation. AWIL is committed to
working with you and the Indian Authorities to resolve all of these difficulties
as soon as possible.”

European defence industry specialists say that
AgustaWestland is almost certain to invoke arbitration if the Indian MoD
unilaterally cancels the AW-101 contract without clear proof of wrongdoing.

So far, clear proof remains elusive. Italian prosecutors
have not yet formally charged the Finmeccanica chief, but they must do so by
May 13, i.e. within 90 days of his arrest. Nor have Italian officials confirmed
the veracity of an “investigation report” which the Italian and Indian media have
quoted from while reporting alleged payoffs.

Nor has there been any apparent progress by the Central
Bureau of Investigation (CBI), which the MoD has requested to probe the deal.

The MoD’s show-cause notice of Feb 15 alleges that
AgustaWestland violated an “Integrity Clause,” a standard part of every Indian
defence procurement contract. The MoD argues that Article 22 of the contract,
which prohibits the use of undue influence, entitles the MoD to cancel the
contract and recover from AgustaWestland any loss arising from such
cancellation.

The MoD has also pointed out that Article 23 of the contract
requires AgustaWestland to declare that no Indian or foreign intermediaries were
engaged or provided financial inducements to win the contract.

In a comprehensive press release on the subject on Feb 14, the
MoD stated that any violation of these articles entitles it to cancel the
contract “without any entitlement or compensation to (AgustaWestland) who shall
be liable to refund all payments… along with interest.”

While the MoD has not responded to requests for a comment,
Business Standard was told that AgustaWestland’s offices are closed for three
days.